In the context of 2014, “we forecast an average price of $1,838/t, which infers a very similar range-bound price dynamic to this year. Given 4.5Mt of metal in LME warehouses and a minimum 2Mt held off-warrant ex..

03 Dec 2013

LONDON (Commodity Online): Aluminium market deficit excluding China is expected to go up further next year than in 2013, “provided producers go ahead with all the production cuts that have been announced, the global market balance will shift into a small 275Kt deficit next year-the first since 2006-07-substantially tighter than the 1.2Mt surplus we forecast back in mid-2013,” according to weekly report by London based Barclays.

In the context of 2014, “we forecast an average price of $1,838/t, which infers a very similar range-bound price dynamic to this year. Given 4.5Mt of metal in LME warehouses and a minimum 2Mt held off-warrant ex-China, there is a pre-existing buffer that limits any immediate upside traction in prices. Also, higher prices could encourage production restarts. But if the downward trend in premiums resumes from Q2 as the new LME rules kick in as we expect, the risks are skewed to further production cuts and bouts of tightness in LME time spreads,” the bank projected.

The critical shift in fundamentals has come on the supply-side ex-China. The LME warehouse rules proposed in July 2013 (and confirmed in November) catalysed a near 15% drop in US and European physical premiums. Combined with a similar fall in LME prices since the beginning of the year, an additional 1.7Mt smelting capacity ex-China fell into loss making territory on top of 1Mty capacity already in such a state at the beginning of the year.

Subsequently, between July and November 2013, 1.4Mty of production curtailments were announced. The IAI data have already started to show some impact, with output ex-China falling 3% y/y to the lowest level since February 2010, although the full impact from closures will not be fully felt until next year, Barclays concluded.